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KENYA ASSOCIATION OF MANUFACTURERS
2015 BUDGET HIGHLIGHTS
Budget Hightlights 2015
The manufacturing sector has been growing at an average rate of 10 per cent for the last 10 or so years. As one of the flagship sectors under Vision 2030, it is expected to contribute to sustained growth of over 10 per cent. In order for this to be achieved, a number of issues that hinder the competitiveness of the sector need to be addressed in terms of infrastructure, the regulatory environment, access to markets, high input costs, competition from cheap imports etc On 11th June 2015, Mr. Henry K. Rotich, the Cabinet Secretary (CS) at the National Treasury tabled a 2.1 trillion budget to Parliament. The CS delivered the budget statement under six thematic areas; Security, Infrastructure development, agricultural and industrial transformation, supporting entrepreneurship, enhancing education and healthcare, and devolution. The Kenyan economy is expected to grow at a rate of 6.5 to 7 per cent in 2015 through interventions in these thematic areas. We expect the economy to maintain the same pace over the medium term, bolstered by lower oil prices, higher public and private investment, increased consumer confidence and higher total factor productivity reflecting continued implementation of structural reforms and increased investment in health and education. Other partner states have also presented their budgets with the exception of Burundi which is undergoing political turmoil. The EAC Budget Speech was read on 13th May 2015 at East African Legislative Assembly (EALA). The budget 2015/2016 has addressed a good number of concerns that KAM raised through the National Treasury and the Ministry of Industrialization and Enterprise Development. Below is a summary of the budget outcome. BUDGET HIGHLIGHTS 1.
Budget’s Key Areas
a) Infrastructure
Standard Gauge Railway Project: The 2015 Budget Policy statement estimates that the completed rail will lead to 70 per cent reduction in transport costs. The project is ahead of schedule and is expected to be completed in mid 2017. KSh 118.2 bn (Chinese loan) and KSh 25.7 bn (RDL Fund) has been allocated for the completion of the project.
Roads construction: Under annuity programme KSh 5 bn has been allocated to construct 2,000KM of roads in 2015/16. KSh 58.5 bn, KSh 26.7 bn and KSh 42 bn will go to ongoing road construction, road maintenance and foreign financed roads respectively.
Energy: The cost of power has declined by 30 per cent with the addition of 280MW geothermal to the national grid. KSh 13.2 bn towards geothermal development has been allocated in line with 5,000MW generation commitment by 2017. Similarly, connection charges have been reduced from KSh 35,000 to KSh 15,000 with the allocation of KSh 21.1 bn and KSh 4.5 bn for power transmission and street lighting respectively.
Port Expansion: The modernisation and expansion of the Mombasa port (Kilindini) and construction of 3 berths at Manda Bay in Lamu has commenced. Container and cargo handling capacity has been expanded.
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KENYA ASSOCIATION OF MANUFACTURERS
b) Security
Securing security: KSh 112 bn has been allocated to the Ministry of Defence and NIS; KSh 102 bn to State Department of Interior. Security surveillance and command & control system are to be rolled out in Nairobi and Mombasa. c)
Fiscal Stability Exchange rate stability: The Central Bank of Kenya has raised the lending rate from 8.5 per cent to 10 per cent and expects to utilize the extended credit facility (ECF) in the event of exogenous shocks.
d) Devolution
The National Treasury has come up with guidelines to be used in the drafting of County Finance Acts. This is expected to tame the County Governments’ introduction of fees and service charges or increasing the current ones, a situation that has driven away businesses and increased costs. The national Treasury is also working on introducing legislation to coordinate the regulation of businesses in the country. e)
Single window The Kenya Trade Net (Kentrade) single window is to be fully operational by 1st July 2015 reducing delays and transaction costs.
f) Procurement
All Ministries, Departments and Agencies are to utilize eProcurement module with an inbuilt active price reference to ensure government does not procure any supplies above market prices. The minimum 40 per cent local content requirement must strictly be adhered to, in line with the spirit of ‘Buy Kenya, Build Kenya’. Accounting officers in procurement entities must ensure suppliers establish plants locally. g)
Cost of doing business Since March 2015, the government has been implementing a Business Regulatory Reform strategy to address the cost of doing business as highlighted in the annual Doing Business Indicator survey by World Bank.
h)
Cost of Credit The Government has implemented the use of Kenya Bankers Reference Rate (KBRR) where borrowers compare different banks lending rates.
i) Industrialization
In his budget statement, the CS National Treasury pointed out that the Ministry of Industrialization and Enterprise development is working on an industrial transformation strategy which aims to support local industries on the basis of our comparative advantage.
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Budget Hightlights 2015
This is expected to enhance industry’s access to new and existing markets and should address some of the current challenges that industries are facing. The strategy will prioritize among others assembly industries for motor vehicles, domestic appliances, and computers. The CS has allocated KSh 3 bn for industrial development which includes development of industrial and recreational parks and Special Economic Zones (SEZs)
j)
Consumer Protection Act The act will be amended to exempt credit agreements between public entities and development Partners from the provisions of the Act.
2.
General Measures
a)
Import Declaration Form (IDF)
The IDF fee has been reduced from 2.25 per cent to 2 per cent
b)
New Bills and amendments to existing Acts The Cabinet secretary tabled three new bills to parliament
• The Excise Bill, 2015 - Kenya has been using the Customs and Excise Act for administration of excise duty, export duty, IDF and RDL. The introduction of this stand alone Bill will effectively repeal the Customs and Excise Act since customs matters are administered under the EAC Customs Management Act, 2004. The CS expects to raise an additional Ksh.25 billion from excise duty.
Specific duties have been instituted as opposed to ad valorem with a once per year indexation adjustment as per manufacturers’ request.
• The Tax Procedures Bill 2015 - The Bill will have all domestic tax procedures, that is, Income tax, VAT and excise procedures. The current practice is that tax procedures are legislated separately. This is a welcome move that will simplify tax administration. • The Miscellaneous Fees and Levies Bill, 2015 - The customs and Excise Act administered matters of excise duty, export duty, IDF and Railway Development Levy (RDL). However, since the Customs and Excise Act is now repealed, levies such as those on exports, IDF and RDL are not catered for. It is for this reason that the Miscellaneous Fee and Levies Bill has been introduced to cater for such levies • The Income Tax Act - The review of the Act has commenced and is expected to be complete by September 2015. • Capital Gains Tax - The 5 per cent tax on gains from the sale of shares has been removed and instead a 0.3 per cent withholding tax introduced on transaction value of the shares • The VAT Act 2013 will be amended to include a provision for a timeline within which a taxpayer is entitled to a refund or may lodge a refund claim. The proposed time is twelve months from the date the tax becomes due and payable. 4
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SECTOR HIGHLIGHTS 1.
Paper and Paperboard
Many grades of paper and paperboard are not produced in the EAC region and are not likely to be in the foreseeable future. Furthermore, paper is an intermediate product in the value chain. Wood and pulp is at 0 per cent and the finished packaging and other paper goods are at 25 per cent. Paper should therefore be at 10 per cent duty rate. It is for this reason that the stay of application requested by Kenya during the last post budget session was lifted/withdrawn for the following grades of paper: 4802.55.00
4802.69.00
4804.49.00
4805.12.00
4808.90.00
4810.39.00
4802.56.00
4804.19.90 Â 4804.51.00
4805.30.00
4810.13.00
4810.92.00
4802.57.00
4804.29.00
4804.52.00
4807.00.00
4810.14.00
4810.99.00
4802.58.00
4804.39.00
4804.59.00
4808.10.00
4810.19.00
4811.49.00
4802.61.00
4804.42.00
4805.11.00
4808.30.00
4810.32.00
4811.51.00
4802.62.00 Kenya was however granted a stay of application of the CET to apply a duty rate of 25 per cent instead of 10 per cent for the following paper and paperboard products:4805.19.00
4805.91.00
4805.92.00
4805.93.00
2.
Food and Beverage
Specific Duty on Sugar: To protect local sugar millers from cheap competition from imported sugar, the Council increased specific duty on imported sugar from US$ 200 to US$ 460 per metric tonne while maintaining the ad valorem rate at 100 per cent duty.
Glucose and Glucose syrup: These are inputs used in the confectionery industry. The EAC council of ministers granted remission of import duty on glucose and glucose syrup (1702.30.00) for gazetted manufacturers to import at a duty rate of 0 per cent instead of 10 per cent
Semolina (groat and meals of wheat): Pasta and spaghetti can now be locally manufactured competitively since the raw material - semolina - of tariff 1103.1100 will be imported under the EAC duty remission scheme at a duty rate of 0 per cent instead of 25 per cent
Wheat: To address Kenya’s wheat flour deficit, wheat grain of tariff 1001.9910 and 1001.9990 has been granted duty remission by gazetted millers at a duty rate of 10 per cent instead of 35 per cent
Bottled Water: The Cabinet Secretary of the National Treasury tabled the Excise duty Bill 2015 to Parliament. In the Bill, the excise duty on bottled water has been done away with.
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Budget Hightlights 2015
3.
Plastics and Rubber Sector
Plastic Tubes for packing Toothpaste and Cosmetics: Kenya is the only manufacturer of plastic tubes for packing toothpaste and cosmetics in the region. The Council agreed to increase the duty rate from 10 per cent to 25 per cent on plastic tubes of 3923.90.20. 4.
Metal and Allied Sector Iron and Steel products of the following tariff numbers had their duty rates increased from 10 per cent to 25 per cent by the Council because they are available in the region in sufficient quantities: 7212.4000
7214.9900
7215.1000
7216.1000
7216.5000
7216.9100
7214.1000
7214.3000
7215.5000
7216.2100
7216.6100
7216.9900
7214.2000
7214.9100
7215.9000
7216.2200
7216.6900
Similarly, a duty rate of 10 per cent instead of 0 per cent shall apply to: 7208.5200
7208.5300
7208.5400
7208.9000
Kenya has also been granted a stay of application for the following:
• a duty rate of 25 per cent instead of 0 per cent for bridges and bridge sections of tariff 7308.1000; equipment of scaffolding, shuttering, propping or pit propping of tariff 7308.4000 • a duty rate of 25 per cent instead of 10 per cent for screws and bolts of tariff 7318.1500
Gas cylinders: The Council removed gas cylinders from the exemption regime (5th Schedule of EAC Customs Management Act) and reduced the duty rate from 25 per cent to 0 per cent. However, Kenya was granted a stay of application of the CET to apply a duty rate of 25 per cent instead of 0 per cent to protect local manufacturers.
Towers and Lattice Masts(7308.20.00): Kenya was granted a stay of application of the CET rate on towers and lattice masts of tariff 7308.2000 to apply a duty rate of 25 per cent instead of 10 per cent for one year to further grant protection to local manufacturers.
Prefabricated Buildings (9406.00.90): Addressing classification under a residual tariff 9406.0090 of prefabricated buildings and to protect local manufacturers, the Council extended the stay of application of CET to apply 25 per cent instead of 10 per cent
Aluminium Milk cans (7612.90.90): Kenya is the leading manufacturer of milk cans in the region. In order to protect the local manufacturers, Kenya was granted a stay of application on the CET of 10 per cent and will instead apply a duty rate of 25 per cent.
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KENYA ASSOCIATION OF MANUFACTURERS
5.
Timber, Wood and Furniture Sector
Wood splints for manufacture of matches: Gazetted manufacturers will now import wood splints of tariff 4421.9000 at a duty rate of 0 per cent instead of 10 per cent under the EAC duty remission scheme.
6.
Textile and Apparel Sector
Made up fishing nets: Local manufacturers of made up fishing nets have been granted duty remission to import nylon yarns of 5402.6100 and synthetic twine of 5607.50000 under the EAC duty remission scheme. Additionally, to protect them from cheap imports, Kenya was granted a stay of application of the CET on made up fishing nets of tariff 5608.1100 to apply a duty rate of 25 per cent instead of 10 per cent.
7.
Motor Vehicle Sector
Oil and petrol filters: There is sufficient capacity to produce these filters of tariff 8421.2300 and 8421.3100. Kenya has been granted a stay of application of the CET to apply a 25 per cent duty rate instead of 10 per cent for one more year.
Lease Financing: KSh 7.7 bn has been allocated for lease financing of Police/Prisons motor vehicles.
8.
Leather Sector
The export duty on hides and skins in the EAC have been harmonised in order to encourage value addition and investment in the sector. Hides and skins will now be levied at 80 per cent of FOB value or 0.52 USD per kg, whichever is higher. This move is expected to discourage smuggling activities across the EAC.
9.
Electrical Sector
Kenya has been granted a stay of application on the CET on sim cards of tariff 8542.39.00 and smart cards of tariff 8523.52.00 in order to protect local manufacturing. Kenya will therefore apply 25 per cent duty rate instead of 10 per cent for a period of one year.
10.
Chemical Sector
Paints Subsector: Acrylic polymers of tariff 3906.9000 used in the manufacture of paints have been granted duty remission for gazetted manufacturers to be imported at a 0 per cent duty instead of 25 per cent because they are not available locally.
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